forms of trade aside from weapons). New ideas and more international contacts could even lead to an improvement of human rights in some countries, especially those with a poor track records on human rights. It previously had this effect in some formerly communist states. If trade helps grow an economy in an inclusive way, hunger and crime rates are typically lowered and poverty is reduced.50
New products are available and often at a lower price than if they had been produced locally. New jobs are created, not just in the industrialized countries but also in many less industrialized nations. Jobs lead to the reduction of poverty. The World Bank reports that “there are almost no examples of countries experiencing significant growth without reducing poverty.”51
Negative aspects
The ease of transportation, of both people and goods, makes the transmission of diseases throughout the world easier than before. This became acutely obvious during the global pandemic associated with Covid‐19, which also illustrated the fragility of economies more dependent on steady streams of commerce through global supply chains. In the same way, rapid electronic communications and the huge number of people and goods moving through the world make criminal and terror activities more difficult to control.
Although it is true that increased production can cause more pollution, many argue that once nations become richer and reduce their poverty, they tend to clean up their environments.
A number of jobs are lost in rich countries when multinational corporations move some of their production or service facilities to less industrialized nations where labor costs are lower. It is true that many new jobs are still being created in the United States, fewer in Europe and Japan, but the type of available jobs may be changing and it is not easy for certain (particularly older) workers who have been laid off to qualify for them.
Some have argued that corporations are moving facilities to nations with less protective laws to escape the necessity of complying with stricter environmental and labor laws in their home countries. Rapid economic growth in countries such as China and India has led to major pollution of air, water, and land.
Cultural imperialism by the United States, with its corresponding undermining of local cultures, is increasing. A world traveler can frequent many cities and dine on Big Macs, fries, and shakes in any of them. The largest single export industry in the United States is not aircraft or automobiles but entertainment, especially Hollywood films.
The gap between rich and poor nations is growing. Some poor nations are being left behind economically and technologically. The shift to knowledge‐based industries is accelerating and creating an even greater gap. From 2010 to 2014, about 87 percent of people in the United States had access to the internet, whereas only about 18 percent of Indians did, and even fewer in Pakistan and Bangladesh.52 In 2014, 4.4 billion people still did not have any access to the internet – a quarter of these lacked any access to electricity.53
Because nations’ economies are so tied together today, an economic problem in one can spread to others extremely quickly. We saw that happening in the late 1990s when a financial crisis hit Thailand, Indonesia, Malaysia, the Republic of Korea, and other countries. Economic recessions and depressions also come with the dominance of the market. Capitalism has always had its cycles, and a “down” cycle can mean high unemployment and human suffering. Many of the fastest growing economies are tied to that of the US. If the United States goes into a period of slow or no growth it will affect many other countries whose wealth comes mainly from exports to the United States. We saw this very thing happening in the world recessions of 2008–2009 and the economic shocks from Covid‐19.
We are also seeing an increase in nationalism and protectionist measures. Many nations are not so happy about losing some of their national autonomy to multilateral institutions such as the International Monetary Fund, World Trade Organization, World Bank, and regional trade organizations. While the world has enjoyed an unprecedented era of economic growth fueled by aggressively expanding the volume of goods and services traded as well as development finance that supports enhanced trading infrastructure, we are also seeing some backlash. By the end of 2018, there had been a big uptick in protectionist measures.54 Several free trade agreement negotiations had either fallen apart or got renegotiated. And the United States and China had taken significant measures against each other’s exports.
Geography and Wealth, Geography and Poverty
Adam Smith had a second theory of why some nations are rich and some poor. Modern economists usually ignore this part of Smith’s writings. Not only did Smith believe that a free market economy would lead to wealth, but he also believed that nations bordering a sea would usually be richer than inland, landlocked countries. Recent research shows that geography does matter. Nations with access to the sea by coastal ports or by navigable rivers and those in the temperate climate zone have historically been the wealthiest nations. Those nations landlocked and in the tropical zone or mainly desert or mountainous have had less access to trade routes and perhaps not surprisingly have had lower GNPs on average.55
Why does geography matter? The reasons are not hard to discover. First, shipping and receiving goods by sea is cheaper than shipping by land or air. For example, shipping a container to a major coastal city can cost only a fraction of the cost of shipping to a remote landlocked area (for example it might cost $3,000 to ship a container to the Ivory Coast and $10,000 more to send a similarly sized container to landlocked Central African Republic). Also, people and new ideas often arrive in coastal areas first. Second, tropical climates are plagued by infectious diseases, such as malaria, which debilitate the workforce. An estimated hundreds of millions of new cases of malaria occur each year, nearly all of them in the tropics. Winter is the great natural controller of many diseases. In tropical countries many diseases flourish all year long, making them difficult to control. And recognizing the economic wealth in many tropical countries is relatively limited, thereby limiting opportunities to profit commercially, pharmaceutical firms have tended to prioritize economically lucrative conditions such as erectile dysfunction over more critical health needs such as malaria.
Agricultural production is also usually higher in temperate and subtropical climates than in tropical climates. For example, a hectare of land in the temperate zone produces about 6 tons of corn or maize, while the same amount of land in the tropics produces about 2 tons. Rich countries spend much more on research to help their farmers in the temperate zone increase production than on research that would better serve many of the world’s poorest and most vulnerable farmers, who are more concentrated in poorer tropical countries.
Geography alone does not explain why some countries are wealthier than others. While nearly all the wealthiest countries are in the temperate zone, such as North America, Western Europe, and Northeast Asia, the economic system they follow is also important. For example, the former Soviet Union and Eastern Europe are still struggling economically to overcome their socialist pasts. This fact is shown even more dramatically by looking at present and past countries with the same geographical characteristics, but which have or had different economic systems and vastly different wealth: South Korea and North Korea, West and East Germany (before unification), Austria and the Czech Republic, and Finland and Estonia. In each case the first‐mentioned state in the comparison followed a market system and greatly outperformed the second, originally socialist state.56
In addition to the difficulties caused by
